More On Bubbles, The Increased Risk Of Collapse Of Globalization, And Need To Channel World's Surplus Capital Into Investment In Emerging Economies

..."If the world economy is to be less dependent on destructive bubbles, more of the world’s surplus capital needs to flow into investment in emerging economies. The problem, however, is that such flows have also always led to crises. This is why emerging economies set themselves to accumulate vast foreign currency reserves in this decade. It is essential, therefore, to make the world economy much more supportive of net borrowing by emerging economies.

What will be needed for this is far bigger and more effective insurance against systemic risks than the International Monetary Fund now provides. A crucial step is a restructuring of the IMF’s governance, to make it more responsive to the needs of responsible borrowers. One of the ideas Mr Obama should propose is the establishment of a high-level committee to recommend a radical restructuring of global institutions, with a view to lowering risks of the emerging market crises that preceded the era of advanced country bubbles.

Let us be clear about what is at stake. It is essential to clean up the huge current mess. But it is also evident that an open world economy will be unsustainable if it remains dependent on bubbles. Collapse of globalisation is now no small risk. Mr Obama is present at the re-creation of the global economic system. It is a challenge he has to take up."

Martin Wolf "Why Obama must mend a sick world economy" Financial Times January 20, 2009

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Can you locate on the above map the Iron Curtains of 1989 and early 2009?

Image credit: Vernes Seferovic and Wikipedia. With thanks.

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Polikurovsky Hill, Joann Zlatoust Church, Yalta, Autonomous Republic of Crimea (Ukraine), Future European Union.

Photo credit: (c) Sergey Kuznetsov and VirtualTourist.com. 2008. Copyright controlled. All rights reserved. With thanks.